Fed may keep open lifeline to financial firms

By Burton Frierson

NEW YORK (Reuters) - Federal Reserve Chairman Ben Bernanke said on Tuesday the U.S. central bank might keep open a lifeline to financial firms, while the latest data showed distress in the housing and retail sectors continues.

Bernanke promised to consider retaining an emergency lending facility for Wall Street firms past year-end, showing the Fed is determined to stop the housing-inspired credit crisis from wreaking further havoc on the economy.

Investors have lived in constant fear of yet another eruption of credit turmoil, which started last year when it became clear that the bursting of the U.S. housing bubble was causing severe losses across financial markets.

"The presumption was that (Fed officials) were going to wind down the lending programs if and only if credit conditions improve. Obviously that has not been the case," said William O'Donnell, director of interest rate strategy at UBS Securities LLC in Stamford, Connecticut.

"Money has become dear despite their efforts. The problems seem to be elevated and are actually creeping higher."

U.S. Treasury Secretary Henry Paulson said home foreclosures may hit 2.5 million this year, many of them the borrowers' own fault for taking out loans they could not afford.

JPMorgan Chase & Co Chief Executive Jamie Dimon said simply because some problems in the credit markets have been resolved does not mean market conditions will not get worse.

HOUSING, RETAIL, HURTING